For 30 years, China’s rapid growth has been fueled by cheap labor in manufacturing industry. In the past 5 years, large amounts of capital have been swarming into the property market with the growth in manufacturing industry dying away. This influx of capital raises land and housing prices, and corruption aggravates the problem as the government is financed by selling the land. This year, in order to contain the property bubbles, the central government intervened. Major state-owned firms are ordered to divest from the property market and go public. It is hoped that market forces will help to adjust the imbalance. It is also expected that capital will be channeled from the property market to the stock market. Side effects of the control may also be minimized in the meantime. After all, the inelastic demand of housing underlies the persistence of high prices, even with supply of low-rent housing. This demand comes from a vast group of consumers untapped before–the rural residents.

The urban-rural integration movement initiated in Chengdu and Chongqing in the past five years is based on the contracted use of farmer’s land. In the past land reforms, farming land was legally collectively owned and not to be transferred by individual or the municipal government, or rented for non-agricultural use. The state could re-claim the land for other uses. Such is the source of the corruption of financing the government by selling the land. Promised great profits by the real estate businesses, the government re-claimed the farmers’ land at low prices. The farmers lose the land overnight for meager compensations, which often contributed to the social unrest and anti-government campaigns.

Pioneering real estate businessmen in Chengdu and Chongqing have sought ways to untangle the land use puzzle by exploiting concepts of city-construction land use and illegal county-owned property development and collective-owned construction land use. City-construction land use is the legal land development on properties trades within cities. County-owned property development, or commonly known as small property development, is development on farming land; because of the restriction on farming land, small property development is illegal. However, this is a bold attempt and provides guidance on future land reforms. The development of the collectively-owned land is an experiment engineered by the central government. The Sichuan earthquake provided ideal conditions for land reform, allowing open transactions of collectively owned land in the reconstruction efforts. Therefore the two parties to the transaction of the land are farmers and developers. The farmers, formerly excluded in the market economy reform, finally enter the game. Their gains empower their consumption capacity, and the government is forced out of the transaction, which reduces the corruption stemming from land sales.

Then, what is the size of the rural land reform market？ 2010 data show that average income of the urban and rural populations grew 7.8% and 10.9% respectively, with rural income gains first surpassing the urban. The 400 million urban inhabitants are the only active consumers whose spending is impaired by worries over incomplete social welfare system; while the 900 million farmers spend very little in general. If within five years, China can complete reforms of housing, medical and educational policies, a full release of the buying power of the urban populations is expected. The impact of the land reform will be even greater, creating a new group of consumers. China has progressed from the initial confusion and naivety cause by declines in cheap manufacturing, and arrived today as a major power after resolute economic reform. China’s future economic outlook is quite bright.